Esse est percipi (To be is to be perceived). — George Berkeley

Perception and Individual Decision Making After studying this chapter, you should be able to:

1

Explain how two people can see the same thing and interpret it differently.

6

Describe the actions of the boundedly rational decision maker.

2

List the three determinants of attribution.

7

List and explain the common decision biases or errors.

3

Describe how shortcuts can assist in or distort our judgment of others.

8

4

Explain how perception affects the decision-making process.

Identify the conditions in which individuals are most likely to use intuition in decision making.

9

Contrast the three ethical decision criteria.

5

Outline the six steps in the rational decision-making model.

L E A R N I N G 144

O B J E C T I V E S

CHAPTER

5

The Hurtful Power of Stereotypes adia Aman, Mirza Baig, M.

N

gled out by security officials for a full

Yusuf Mohamed, and Ammar

search.

common. They’re all young, Muslim, and

related to his morning prayers. For

work for the U.S. federal government.

instance, he was recently at

Since September 11, 2001, their lives have

Reagan National for a 7:20 A.M.

changed. And much of this is due to

flight.He sought out a corner

stereotypes that coworkers and the public

to say his prayers because

have of Muslims.

the airport chapel was

Barghouty have three things in

Mohamed describes problems

Aman is a project analyst in the U.S.

closed. But realizing that

Commerce Department. Baig is a senior

his behavior could be

network engineer in the executive office

misconstrued, he did

of the president. Mohamed is an attorney

something he never

with the U.S. Labor Department. And

would have done prior

Barghouty is a special agent with the FBI.

to September 11th. “I

Even though they’ve all lived in the United

went over to the gate

States for 20 years or more, each has expe-

agent, and I said, ‘You

rienced slights because of their ethnicity

know, I’m going to use

and the lack of understanding of their

this corner to make my

Muslim faith.

morning prayers.’ They

Following September 11th, “I find

didn’t object.” Mohamed

myself constantly having to explain and

resented having to give

defend myself,” says Aman. She sees “a

advance notice. “I’m [now]

degree of paranoia among Muslims.

more self-conscious about

[We’ve become] afraid people will miscon-

displays of faith in public,” he

strue what [we] say.”

says.

Baig recently was at Reagan National

A few days after September

Airport, headed for President Bush’s ranch

11th, Barghouty was staking out a

in Texas with a senior government official

Washington, D.C., apartment building

and holding a plane ticket bought with a

and chatting with the FBI manager on

government credit card. Although he

duty. “His solution was to ship all the

came to the United States from India

Muslims back home, back where they

when he was 14, the dark-complexioned

came from,’ ”said Barghouty, who came to

Baig was the only one on his flight sin-

the United States with his Palestinian 145

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parents when he was a year old. Barghouty responded,“ ‘So you can start with me.’ He apologized real fast.” Unfortunately, Aman, Baig, Mohamed, and Barghouty aren’t alone. Many Muslim women have experienced unfair treatment because of the way people perceive their Muslim dress. For example, US Airways kept a Muslim flight attendant from working after she chose to wear a hijab (a Muslim head scarf ), and Dunkin’ Donuts fired a Muslim employee after she refused to remove her hijab. Recently, Aicha Baha sued Walt Disney World, alleging that she was fired because she wouldn’t remove her hijab at work. Another women, Jennifer Abdelwahed, recently sued her employer—Goodwill Industries—for the same reason. A San Francisco area journalist started wearing her Muslim head scarf in a less traditional style in the past year. “I was on a bus and some kids got on, and they started calling me a terrorist,”says Yasmin, who doesn’t want her last name used because of that experience. “They asked if I was going to blow up the bus.” Now, she says,“I don’t wear a long, flowing head scarf. I wear it in a bun, so it looks more like a wrap or a fashion statement. That allows me to blend in a little more.”1 ■

T

he terrorist attacks of September 11th brought home to millions of Muslims living in the United States the hurtful power of stereotypes. In this chapter, we’ll look at stereotypes as part of our discussion of perception and explain how they shape judgments we make about others. Then we’ll link perception to decision making, describe how decisions should be made, and review how decisions are actually made in organizations.

What Is Perception? Perception is a process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment. However, what one perceives can be substantially different from objective reality. There need not be, but there is often, disagreement. For example, it’s possible that all employees in a firm may view it as a great place to work—favorable working conditions, interesting job assignments, good pay, excellent benefits, an understanding and responsible management—but, as most of us know, it’s very unusual to find such agreement. Why is perception important in the study of OB? Simply because people’s behavior is based on their perception of what reality is, not on reality itself. The world as it is perceived is the world that is behaviorally important.

Factors Influencing Perception How do we explain that individuals may look at the same thing, yet perceive it differently? A number of factors operate to shape and sometimes distort perception. These factors can reside in the perceiver, in the object or target being perceived, or in the context of the situation in which the perception is made (see Exhibit 5-1).

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Exhibit 5-1

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Factors That Influence Perception Factors in the perceiver • Attitudes • Motives • Interests • Experience • Expectations Factors in the situation • Time • Work setting • Social setting

Perception

Factors in the target • Novelty • Motion • Sounds • Size • Background • Proximity • Similarity

When an individual looks at a target and attempts to interpret what he or she sees, that interpretation is heavily influenced by the personal characteristics of the individual perceiver. Personal characteristics that affect perception include a person’s attitudes, personality, motives, interests, past experiences, and expectations. For instance, if you expect police officers to be authoritative, young people to be lazy, or individuals holding public office to be unscrupulous, you may perceive them as such regardless of their actual traits. Characteristics of the target being observed can affect what is perceived. Loud people are more likely to be noticed in a group than quiet ones. So, too, are extremely attractive or unattractive individuals. Because targets are not looked at in isolation, the relationship of a target to its background also influences perception, as does our tendency to group close things and similar things together. For instance, women, people of color, or members of any other group that has clearly distinguishable characteristics in terms of features or color are often perceived as alike in other, unrelated characteristics as well. The context in which we see objects or events is also important. The time at which an object or event is seen can influence attention, as can location, light, heat, or any number of situational factors. For example, at a nightclub on Saturday night, you may not notice a 22-year-old female “dressed to the nines.” Yet that same woman so attired for your Monday morning management class would certainly catch your attention (and that of the rest of the class). Neither the perceiver nor the target changed between Saturday night and Monday morning, but the situation is different.

perception

A process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment.

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Person Perception: Making Judgments About Others Now we turn to the most relevant application of perception concepts to OB. This is the issue of person perception. By that, we mean the perceptions people form about each other.

Attribution Theory Our perceptions of people differ from our perceptions of inanimate objects such as desks, machines, or buildings because we make inferences about the actions of people that we don’t make about inanimate objects. Nonliving objects are subject to the laws of nature, but they have no beliefs, motives, or intentions. People do. The result is that when we observe people, we attempt to develop explanations of why they behave in certain ways. Our perception and judgment of a person’s actions, therefore, will be significantly influenced by the assumptions we make about that person’s internal state. Attribution theory has been proposed to develop explanations of the ways in which we judge people differently, depending on what meaning we attribute to a given behavior.2 Basically, the theory suggests that when we observe an individual’s behavior, we attempt to determine whether it was internally or externally caused. That determination, however, depends largely on three factors: (1) distinctiveness, (2) consensus, and (3) consistency. First, let’s clarify the differences between internal and external causation and then we’ll elaborate on each of the three determining factors. Internally caused behaviors are those that are believed to be under the personal control of the individual. Externally caused behavior is seen as resulting from outside causes; that is, the person is seen as having been forced into the behavior by the situation. For example, if one of your employees is late for work, you might attribute his lateness to his partying into the wee hours of the morning and then oversleeping. This would be an internal attribution. But if you attribute his arriving late to an automobile accident that tied up traffic on the road that this employee regularly uses, then you would be making an external attribution. Now let’s discuss each of the three determining factors. Distinctiveness refers to whether an individual displays different behaviors in different situations. Is the employee who arrives late today also the source of complaints by coworkers for being someone who regularly “blows off” commitments? What we want to know is whether this behavior is unusual. If it is, the observer is likely to give the behavior an external attribution. If this action is not unusual, it will probably be judged as internal. If everyone who faces a similar situation responds in the same way, we can say the behavior shows consensus. The behavior of the employee discussed above would meet this criterion if all employees who took the same route to work were also late. From an attribution perspective, if consensus is high, you would be expected to give an external attribution to the employee’s tardiness, whereas if other employees who took the same route made it to work on time, your conclusion as to causation would be internal. Finally, an observer looks for consistency in a person’s actions. Does the person respond the same way over time? Coming in 10 minutes late for work is not perceived in the same way for the employee for whom it is an unusual case (she hasn’t been late for several months) as it is for the employee for whom it is part of a routine pattern (she is late two or three times a week). The more consistent the behavior, the more the observer is inclined to attribute it to internal causes. Exhibit 5-2 summarizes the key elements in attribution theory. It would tell us, for instance, that if your employee—Kim Randolph—generally performs at

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Exhibit 5-2

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Attribution Theory Observation

Attribution of cause

Interpretation High Distinctiveness

Low High

Individual behavior

Consensus

Low High

Consistency

Low

External Internal External Internal Internal External

about the same level on other related tasks as she does on her current task (low distinctiveness), if other employees frequently perform differently—better or worse—than Kim does on that current task (low consensus), and if Kim’s performance on this current task is consistent over time (high consistency), you or anyone else who is judging Kim’s work is likely to hold her primarily responsible for her task performance (internal attribution). One of the more interesting findings from attribution theory is that there are errors or biases that distort attributions. For instance, there is substantial evidence that when we make judgments about the behavior of other people, we have a tendency to underestimate the influence of external factors and overestimate the influence of internal or personal factors.3 This is called the fundamental attribution error and can explain why a sales manager is prone to attribute the poor performance of her sales agents to laziness rather than to the innovative product line introduced by a competitor. There is also a tendency for individuals and organizations to attribute their own successes to internal factors such as ability or effort while putting the blame for failure on external factors such as bad luck or unproductive coworkers. This is called the self-serving bias.4 For example, when the Iraq war appeared to go well, the White House declared “Mission Accomplished.” But when it became clear that the weapons of mass destruction (WMD) were nowhere to be found and that the fighting was far from over, the White House rushed to blame intelligence failures. Are these errors or biases that distort attributions universal across different cultures? The evidence is mixed, but most of it suggests that there are cultural differences.5 For instance, a study of Korean managers found that, contrary to the self-serving bias, they tended to accept responsibility for group failure “because I was not a capable leader” instead of attributing it to group members.6 Attribution theory was developed largely based on experiments with

fundamental attribution error The individuals observe behavior to determine tendency to underestimate the influence whether it is internally or externally caused. of external factors and overestimate the influence of internal factors when making judgments about the behavior of others.

attribution theory An attempt when

self-serving bias The tendency for individuals to attribute their own successes to internal factors while putting the blame for failures on external factors.

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Americans and Western Europeans. But the Korean study suggests caution in making attribution theory predictions in non-Western societies, especially in countries with strong collectivist traditions.

Frequently Used Shortcuts in Judging Others We use a number of shortcuts when we judge others. Perceiving and interpreting what others do is burdensome. As a result, individuals develop techniques for making the task more manageable. These techniques are frequently valuable—they allow us to make accurate perceptions rapidly and provide valid data for making predictions. However, they are not foolproof. They can and do get us into trouble. An understanding of these shortcuts can be helpful in recognizing when they can result in significant distortions. Selective Perception Any characteristic that makes a person, object, or event stand out will increase the probability that it will be perceived. Why? Because it is impossible for us to assimilate everything we see—only certain stimuli can be taken in. This tendency explains why you are more likely to notice cars like your own or why some people may be reprimanded by their boss for doing something that, when done by another employee, goes unnoticed. Because we can’t observe everything going on about us, we engage in selective perception. A classic example shows how vested interests can significantly influence which problems we see. Dearborn and Simon performed a perceptual study in which 23 business executives read a comprehensive case describing the organization and activities of a steel company.7 Of the 23 executives, 6 were in sales, 5 in production, 4 in accounting, and 8 in miscellaneous functions. Each manager was asked to write down the most important problem he found in the case. Eighty-three percent of the sales executives rated sales important; only 29 percent of the others did so. This, along with other results of the study, led the researchers to conclude that the participants perceived aspects of a situation that were specifically related to the activities and goals of the unit to which they were attached. A group’s perception of organizational activities is selectively altered to align with the vested interests they represent. In other words, when the stimuli are ambiguous, as in the steel company case, perception tends to be influenced more by an individual’s base of interpretation (that is, attitudes, interests, and background) than by the stimulus itself. But how does selectivity work as a shortcut in judging other people? Because we cannot assimilate all that we observe, we take in bits and pieces. But those bits and pieces are not chosen randomly; rather, they are selectively chosen according to our interests, background, experience, and attitudes. Selective perception allows us to “speed-read” others, but not without the risk of drawing an inaccurate picture. Because we see what we want to see, we can draw unwarranted conclusions from an ambiguous situation. Halo Effect When we draw a general impression about an individual on the basis of a single characteristic, such as intelligence, sociability, or appearance, a halo effect is operating.8 This phenomenon frequently occurs when students appraise their classroom instructor. Students may give prominence to a single trait such as enthusiasm and allow their entire evaluation to be tainted by how they judge the instructor on that one trait. Thus, an instructor may be quiet, assured, knowledgeable, and highly qualified, but if his or her style lacks zeal, those students would probably give the instructor a low rating. The reality of the halo effect was confirmed in a classic study in which subjects were given a list of traits such as intelligent, skillful, practical, industrious, determined, and warm and were asked to evaluate the person to whom those traits applied.9 When those traits were used, the person was judged to be wise,

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Can Negative Perceptions Dampen International Business Relations? JAPAN AND CHINA WOULD SEEM TO BE NATURAL economic partners given that they’re so close to each other. However, Japanese companies currently lag behind both the United States and Europe in terms of trade with China. Although the Japanese auto industry has had enormous success in other countries, including the United States, the top-selling foreign cars in China are produced by GM (an American company) and Volkswagen (a German company). Also, Japan’s booming electronics industry currently captures only 5 percent of the Chinese market. But who or what is to blame for the dismal business relationship between Japan and China? The perceptions of the public—in both countries—may be the answer. For example, many Chinese citizens are still angered about a report that employees of a Japanese construction company hired Chinese prostitutes for a corporate party. And many Japanese citizens believe that Chinese immigrants are to blame for many of the violent crimes taking place in Japan. In addition to these recent events, historically, relations between the two countries have been strained. Beijing is still upset about Japan’s military invasion of China in the 1930s and 1940s, for which Japan refuses to make amends. These negative perceptions may be difficult to reverse if one considers perceptual errors such as fundamental attribution error and the halo effect. That is, both countries blame each other for their behaviors (make an internal attribution), and both countries tend to view each other’s actions as negative (negative halo effect). Because of these perceptual errors, it is likely that future behaviors, even if they are ambiguous, may be perceived negatively by the other country. Source: Based on C. Chandler,“Business Is Hot, Relations Are Not,” Fortune (Europe),April 19, 2004, pp. 20–21; and “China Urges Japan To Do More To Improve Ties,” The Associated Press, March 14, 2005.

humorous, popular, and imaginative. When the same list was modified—cold was substituted for warm—a completely different set of perceptions was obtained. Clearly, the subjects were allowing a single trait to influence their overall impression of the person being judged. The propensity for the halo effect to operate is not random. Research suggests that it is likely to be most extreme when the traits to be perceived are ambiguous in behavioral terms, when the traits have moral overtones, and when the perceiver is judging traits with which he or she has had limited experience.10 Contrast Effects There is an old adage among entertainers who perform in variety shows: Never follow an act that has kids or animals in it. Why? The common belief is that audiences love children and animals so much that you’ll look bad in comparison. This example demonstrates how contrast effects can distort perceptions. We don’t evaluate a person in isolation. Our reaction to one person is influenced by other persons we have recently encountered.

selective perception

Selectively halo effect Drawing a general interpreting what one sees on the basis of impression about an individual on the one’s interests, background, experience, basis of a single characteristic. and attitudes.

contrast effects

Evaluation of a person’s characteristics that are affected by comparisons with other people recently encountered who rank higher or lower on the same characteristics.

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An illustration of how contrast effects operate is an interview situation in which an interviewer sees a pool of job applicants. Distortions in any given candidate’s evaluation can occur as a result of his or her place in the interview schedule. A candidate is likely to receive a more favorable evaluation if preceded by mediocre applicants and a less favorable evaluation if preceded by strong applicants. Projection It’s easy to judge others if we assume that they’re similar to us. For instance, if you want challenge and responsibility in your job, you assume that others want the same. Or, you’re honest and trustworthy, so you take it for granted that other people are equally honest and trustworthy. This tendency to attribute one’s own characteristics to other people—which is called projection—can distort perceptions made about others. People who engage in projection tend to perceive others according to what they themselves are like rather than according to what the person being observed is really like. When managers engage in projection, they compromise their ability to respond to individual differences. They tend to see people as more homogeneous than they really are. Stereotyping When we judge someone on the basis of our perception of the group to which he or she belongs, we are using the shortcut called stereotyping.11 We saw the problems stereotyping can create at the opening of this chapter: All Muslims are not terrorists! We rely on generalizations every day because they help us make decisions fast and as accurately as possible. It’s a means of simplifying a complex world, and it permits us to maintain consistency. It’s less difficult to deal with an unmanageable number of stimuli if we use stereotypes. As an example, assume you’re a sales manager looking to fill a sales position in your territory. You want to hire someone who is ambitious and hardworking and who can deal well with adversity. You’ve had success in the past by hiring individuals who participated in athletics during college. So you focus your search by looking for candidates who participated in collegiate athletics. In so doing, you have cut down con-

Are all business leaders greedy and dishonest? The general public’s perception of businesspeople as unethical is shaped by the vast media coverage of corporate corruption and criminal trials of executives like Martha Stewart. Stewart, found guilty of conspiracy, obstructing justice, and lying to the government about a stock sale, is shown here after being sentenced to prison. Stereotyping all business leaders as corrupt is not accurate, but it’s a means many people use to simplify their perception of the complexities of the business world.

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siderably on your search time. Furthermore, to the extent that athletes are ambitious, hardworking, and able to deal with adversity, the use of this stereotype can improve your decision making. The problem, of course, is when we inaccurately generalize or overgeneralize.12 In other words, not all college athletes are ambitious, hardworking, or good at dealing with adversity. In organizations, we frequently hear comments that represent stereotypes based on gender, age, race, ethnicity, and even weight: 13 “Women won’t relocate for a promotion”; “men aren’t interested in child care”; “older workers can’t learn new skills”; “Asian immigrants are hardworking and conscientious”; “overweight people lack discipline.” From a perceptual standpoint, if people expect to see these stereotypes, that is what they will perceive, whether or not they are accurate. Obviously, one of the problems of stereotypes is that they are widespread and often useful, despite the fact that they may not contain a shred of truth when applied to a particular person or situation. So, we constantly have to check ourselves to make sure we’re not unfairly or inaccurately applying a stereotype in our evaluations and decisions. Stereotypes are an example of the saying, “The more useful, the more danger from misuse.”

Specific Applications of Shortcuts in Organizations People in organizations are always judging each other. Managers must appraise their employees’ performances. We evaluate how much effort our coworkers are putting into their jobs. When a new person joins a work team, he or she is immediately “sized up” by the other team members. In many cases, these judgments have important consequences for the organization. Let’s briefly look at a few of the more obvious applications. Employment Interview A major input into who is hired and who is rejected in any organization is the employment interview. It’s fair to say that few people are hired without an interview. But the evidence indicates that interviewers make perceptual judgments that are often inaccurate.14 In addition, agreement among interviewers is often poor; that is, different interviewers see different things in the same candidate and thus arrive at different conclusions about the applicant. Interviewers generally draw early impressions that become very quickly entrenched. If negative information is exposed early in the interview, it tends to be more heavily weighted than if that same information comes out later.15 Studies indicate that most interviewers’ decisions change very little after the first 4 or 5 minutes of the interview. As a result, information elicited early in the interview carries greater weight than does information elicited later, and a “good applicant” is probably characterized more by the absence of unfavorable characteristics than by the presence of favorable characteristics. Importantly, who you think is a good candidate and who another thinks is one may differ markedly. Because interviews usually have so little consistent structure and interviewers vary in terms of what they are looking for in a candidate, judgments about the same candidate can vary widely. If the employment interview is an important input into the hiring decision—and it usually is—you should recognize that perceptual factors influence who is hired and eventually the quality of an organization’s labor force.

projection

Attributing one’s own characteristics to other people.

stereotyping

Judging someone on the basis of one’s perception of the group to which that person belongs.

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Performance Expectations There is an impressive amount of evidence that demonstrates that people will attempt to validate their perceptions of reality, even when those perceptions are faulty.16 This characteristic is particularly relevant when we consider performance expectations on the job. The terms self-fulfilling prophecy, or Pygmalion effect, have evolved to characterize the fact that an individual’s behavior is determined by other people’s expectations. In other words, if a manager expects big things from his people, they’re not likely to let him down. Similarly, if a manager expects people to perform minimally, they’ll tend to behave so as to meet those low expectations. The result then is that the expectations become reality. An interesting illustration of the self-fulfilling prophecy is a study undertaken with 105 soldiers in the Israeli Defense Forces who were taking a 15-week combat command course.17 The four course instructors were told that onethird of the specific incoming trainees had high potential, one-third had normal potential, and the potential of the rest was unknown. In reality, the trainees were randomly placed into those categories by the researchers. The results confirmed the existence of a self-fulfilling prophecy. The trainees whom instructors were told had high potential scored significantly higher on objective achievement tests, exhibited more positive attitudes, and held their leaders in higher regard than did the other two groups. The instructors of the supposedly high-potential trainees got better results from them because the instructors expected it. Ethnic Profiling Following the Japanese attack on Pearl Harbor, 120,000 Americans of Japanese heritage—most living on the west coast—were required to relocate into detention camps. Many of them were forced to stay there throughout World War II. The reason for this action? The U.S. government feared that these Americans might hold pro-Japanese attitudes and spy against the United States. Over time, most Americans came to see this as a terrible mistake and a dark footnote in American history. The internment of Japanese Americans during World War II is an example of profiling—a form of stereotyping in which a group of individuals is singled out—typically on the basis of race or ethnicity—for intensive inquiry, scrutinizing, or investigation. While most Americans look back in shame at the actions the U.S. government took against Japanese Americans some 60 years ago, profiling continues in the United States and in other countries. African American drivers continue to be stopped by police in some U.S. cities merely because of the color of their skin. Middle Easterners are closely scrutinized when they go through security at U.S. airports. In Great Britain, people from Ireland are often singled out as potential terrorists. And in Israel, every Arab is seen as a potential suicide bomber. But we’re interested in organizational behavior. And since September 11th, ethnic profiling has increased implications for OB, specifically as it relates to people of Arab ancestry. Coworkers and managers may look at Arab colleagues through new eyes. They may question why Arab colleagues dress differently or engage in religious practices they don’t understand. In fact, Arab Americans’ complaints of workplace discrimination grew dramatically after the September 11th attacks, many of whom argued that they felt under constant surveillance at work.18 The result? This suspicious climate creates distrust and conflicts, undermines motivation, and potentially reduces job satisfaction for ethnic minorities. It’s also likely to result in losing quality job candidates when profiling takes place during the employment screening process. Since September 11th, ethnic profiling has become the subject of much debate. 19 On one side, proponents argue that profiling people of Arab descent is necessary in order to prevent cases of terrorism. After all, a good

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percentage of the large-scale terrorist attacks that have taken place over the past 30 years have come from Muslim terrorists.20 On the other side, critics argue that profiling is demeaning, discriminatory, and an ineffective way to find potential terrorists, and that Muslim Americans are as law-abiding as the average American. The debate is important and implies the need to balance the rights of individuals against the greater good of society. Organizations need to sensitize employees and managers to the damage that profiling can create. Diversity training programs, which we discuss in Chapter 18, are increasingly being expanded to particularly address ethnic stereotyping and profiling. Performance Evaluation Although the impact of performance evaluations on behavior will be discussed fully in Chapter 18, it should be pointed out here that an employee’s performance appraisal is very much dependent on the perceptual process.21 An employee’s future is closely tied to the appraisal—promotions, pay raises, and continuation of employment are among the most obvious outcomes. The performance appraisal represents an assessment of an employee’s work. Although the appraisal can be objective (for example, a salesperson is appraised on how many dollars of sales she generates in her territory), many jobs are evaluated in subjective terms. Subjective measures are easier to implement, they provide managers with greater discretion, and many jobs do not readily lend themselves to objective measures. Subjective measures are, by definition, judgmental. The evaluator forms a general impression of an employee’s work. To the degree that managers use subjective measures in appraising employees, what the evaluator perceives to be good or bad employee characteristics or behaviors will significantly influence the outcome of the appraisal.

The Link Between Perception and Individual Decision Making Individuals in organizations make decisions. That is, they make choices from among two or more alternatives. Top managers, for instance, determine their organization’s goals, what products or services to offer, how best to finance operations, or where to locate a new manufacturing plant. Middle- and lowerlevel managers determine production schedules, select new employees, and decide how pay raises are to be allocated. Of course, making decisions is not the sole province of managers. Nonmanagerial employees also make decisions that affect their jobs and the organizations for which they work. The more obvious of these decisions might include whether or not to come to work on any given day, how much effort to put forth once at work, and whether or not to comply with a request made by the boss. In addition, an increasing number

self-fulfilling prophecy A situation in which one person inaccurately perceives a second person and the resulting expectations cause the second person to behave in ways consistent with the original perception.

profiling A form of stereotyping in which decisions The choices made from a group of individuals is singled out— among two or more alternatives. typically on the basis of race or ethnicity—for intensive inquiry, scrutinizing, or investigation.

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Symantec CEO John Thompson made a decision in reaction to the problem of an explosion of Internet viruses. Thompson said, “About every 15 to 18 months, there’s a new form of attack that makes old technologies less effective.” So he decided to acquire 13 companies that specialize in products such as personal firewalls, intrusion detection, and early warning systems that protect everything from corporate intranets to consumer e-mail inboxes.

of organizations in recent years have been empowering their nonmanagerial employees with job-related decision-making authority that historically was reserved for managers alone. Individual decision making, therefore, is an important part of organizational behavior. But how individuals in organizations make decisions and the quality of their final choices are largely influenced by their perceptions. Decision making occurs as a reaction to a problem.22 That is, there is a discrepancy between some current state of affairs and some desired state, requiring the consideration of alternative courses of action. So if your car breaks down and you rely on it to get to work, you have a problem that requires a decision on your part. Unfortunately, most problems don’t come neatly packaged with a label “problem” clearly displayed on them. One person’s problem is another person’s satisfactory state of affairs. One manager may view her division’s two percent decline in quarterly sales to be a serious problem requiring immediate action on her part. In contrast, her counterpart in another division of the same company, who also had a two percent sales decrease, may consider that percentage quite acceptable. So the awareness that a problem exists and that a decision needs to be made is a perceptual issue. Moreover, every decision requires the interpretation and evaluation of information. Data are typically received from multiple sources and they need to be screened, processed, and interpreted. Which data, for instance, are relevant to the decision and which are not? The perceptions of the decision maker will answer that question. Alternatives will be developed, and the strengths and weaknesses of each will need to be evaluated. Again, because alternatives don’t come with “red flags” identifying them as such or with their strengths and weaknesses clearly marked, the individual decision maker’s perceptual process will have a large bearing on the final outcome. Finally, throughout the entire decision process, perceptual distortions often surface that have the potential to bias analysis and conclusions.

How Should Decisions Be Made? Let’s begin by describing, at least in theory, how individuals should behave in order to maximize or optimize a certain outcome. We call this the rational decision-making process.

The Rational Decision-Making Process We often think that the best decision maker is rational. That is, he or she makes consistent, value-maximizing choices within specified constraints.23 These choices are made following a six-step rational decision-making model.24 Moreover, specific assumptions underlie this model. The Rational Model The six steps in the rational decision-making model are listed in Exhibit 5-3. The model begins by defining the problem. As noted previously, a problem exists when there is a discrepancy between an existing and a desired state of affairs.25 If you calculate your monthly expenses and find you’re spending $100 more than you allocated in your budget, you have defined a problem. Many poor decisions can be traced to the decision maker overlooking a problem or defining the wrong problem.

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Exhibit 5-3

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Steps in the Rational Decision-Making Model

1. Define the problem. 2. Identify the decision criteria. 3. Allocate weights to the criteria. 4. Develop the alternatives. 5. Evaluate the alternatives. 6. Select the best alternative.

Once a decision maker has defined the problem, he or she needs to identify the decision criteria that will be important in solving the problem. In this step, the decision maker determines what is relevant in making the decision. This step brings the decision maker’s interests, values, and similar personal preferences into the process. Identifying criteria is important because what one person thinks is relevant, another person may not. Also keep in mind that any factors not identified in this step are considered irrelevant to the decision maker. The criteria identified are rarely all equal in importance. So the third step requires the decision maker to weight the previously identified criteria in order to give them the correct priority in the decision. The fourth step requires the decision maker to generate possible alternatives that could succeed in resolving the problem. No attempt is made in this step to appraise these alternatives, only to list them. Once the alternatives have been generated, the decision maker must critically analyze and evaluate each one. This is done by rating each alternative on each criterion. The strengths and weaknesses of each alternative become evident as they are compared with the criteria and weights established in the second and third steps. The final step in this model requires computing the optimal decision. This is done by evaluating each alternative against the weighted criteria and selecting the alternative with the higher total score. Assumptions of the Model The rational decision-making model we just described contains a number of assumptions.26 Let’s briefly outline those assumptions. 1. Problem clarity. The problem is clear and unambiguous. The decision maker is assumed to have complete information regarding the decision situation. 2. Known options. It is assumed the decision maker can identify all the relevant criteria and can list all the viable alternatives. Furthermore, the decision maker is aware of all the possible consequences of each alternative. 3. Clear preferences. Rationality assumes that the criteria and alternatives can be ranked and weighted to reflect their importance. 4. Constant preferences. It’s assumed that the specific decision criteria are constant and that the weights assigned to them are stable over time. 5. No time or cost constraints. The rational decision maker can obtain full information about criteria and alternatives because it’s assumed that there are no time or cost constraints. 6. Maximum payoff. The rational decision maker will choose the alternative that yields the highest perceived value.

problem

A discrepancy between some current state of affairs and some desired state.

rational Making consistent, valuemaximizing choices within specified constraints.

rational decision-making model

A decision-making model that describes how individuals should behave in order to maximize some outcome.

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Improving Creativity in Decision Making Although following the steps of the rational decision-making model will often improve decisions, the rational decision maker also needs creativity, that is, the ability to produce novel and useful ideas.27 These are ideas that are different from what’s been done before but that are also appropriate to the problem or opportunity presented. Why is creativity important to decision making? It allows the decision maker to more fully appraise and understand the problem, including seeing problems others can’t see. However, creativity’s most obvious value is in helping the decision maker identify all viable alternatives, or to identify alternatives that aren’t readily apparent. Creative Potential Most people have creative potential that they can use when confronted with a decision-making problem. But to unleash that potential, they have to get out of the psychological ruts many of us get into and learn how to think about a problem in divergent ways. People differ in their inherent creativity, and exceptional creativity is scarce. Albert Einstein, Emily Dickinson, Pablo Picasso, and Wolfgang Mozart were individuals of exceptional creativity. But what about the typical individual? People who score high on Openness to Experience (see Chapter 4), for example, are more likely to be creative. Intelligent people also are more likely to be creative.28 Other traits that have been found to be associated with creative people: independence, self-confidence, risk-taking, an internal locus of control, tolerance for ambiguity, and perseverance in the face of frustration.29 A study of the lifetime creativity of 461 men and women found that fewer than 1 percent were exceptionally creative.30 But 10 percent were highly creative and about 60 percent were somewhat creative. This suggests that most of us have creative potential; we just need to learn to unleash it. See the SelfAssessment feature on p. 159 to assess your level of creativity.

Videogame maker Electronic Arts created an on-site labyrinth to help employees unleash their creative potential. EA encourages video and computer game developers to wander the maze when their creativity levels are running low. While walking the maze, they can think about their challenges in divergent ways for designing innovative products.

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HOW CREATIVE AM I?

In the Self-Assessment Library (available on CD, online, and in print), take assessment I.A.5 (How Creative Am I?) and answer the following questions. 1. 2. 3. 4.

Did you score as high as you thought you would? What are limitations to self-assessments like this? If others [friends, classmates] rated you, would they rate you differently? Why or why not? What could you do to increase your creativity?

Three-Component Model of Creativity Given that most people have the capacity to be at least somewhat creative, what can individuals and organizations do to stimulate employee creativity? The best answer to this question lies in the three-component model of creativity.31 Based on an extensive body of research, this model proposes that individual creativity essentially requires expertise, creative-thinking skills, and intrinsic task motivation (see Exhibit 5-4). Studies confirm that the higher the level of each of these three components, the higher the creativity. Expertise is the foundation for all creative work. Many of Eminem’s lyrics, for example, were based on his childhood experiences. The film writer, producer, and director Quentin Tarantino spent his youth working in a video rental store, where he built up an encyclopedic knowledge of movies. The potential for creativity is enhanced when individuals have abilities, knowledge, proficiencies, and similar expertise in their field of endeavor. For example, you wouldn’t expect someone with a minimal knowledge of programming to be very creative as a software engineer.

Exhibit 5-4

The Three Components of Creativity

Creativity skills

Expertise Creativity

Task motivation

Source: Copyright © 1997, by The Regents of the University of California. Reprinted from The California Management Review, vol. 40, no. 1. By permission of The Regents.

creativity The ability to produce novel and useful ideas.

three-component model of creativity

The proposition that individual creativity requires expertise, creative-thinking skills, and intrinsic task motivation.

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The second component is creative-thinking skills. This encompasses personality characteristics associated with creativity, the ability to use analogies, as well as the talent to see the familiar in a different light. Research suggests that we are more creative when we’re in good moods, so if we need to be creative we should do things that make us happy. Perhaps that is listening to music we enjoy, eating foods we like, watching funny movies, or socializing with others.32 There is also evidence that suggests being around others who are creative can actually make us more inspired, especially if we’re creatively “stuck.”33 The effective use of analogies allows decision makers to apply an idea from one context to another. One of the most famous examples in which analogy resulted in a creative breakthrough was Alexander Graham Bell’s observation that it might be possible to take concepts of how the ear operates and apply them to his “talking box.” He noticed that the bones in the ear are operated by a delicate, thin membrane. He wondered why, then, a thicker and stronger piece of membrane shouldn’t be able to move a piece of steel. Out of that analogy, the telephone was conceived. Some people have developed their creative skills because they are able to see problems in a new way. They’re able to make the strange familiar and the familiar strange.34 For instance, most of us think of hens laying eggs. But how many of us have considered that a hen is only an egg’s way of making another egg? The final component in the three-component model of creativity is intrinsic task motivation. This is the desire to work on something because it’s interesting, involving, exciting, satisfying, or personally challenging. This motivational component is what turns creativity potential into actual creative ideas. It determines the extent to which individuals fully engage their expertise and creative skills. So creative people often love their work, to the point of seeming obsessed. Importantly, an individual’s work environment can have a significant effect on intrinsic motivation. Work-environment stimulants that have been found to foster creativity include a culture that encourages the flow of ideas, fair and constructive judgment of ideas, and rewards and recognition for creative work; sufficient financial, material, and information resources; freedom to decide what work is to be done and how to do it; a supervisor who communicates effectively, shows confidence in others, and supports the work group; and work-group members who support and trust each other.35

How Are Decisions Actually Made in Organizations? Are decision makers in organizations rational? Do they carefully assess problems, identify all relevant criteria, use their creativity to identify all viable alternatives, and painstakingly evaluate every alternative to find an optimal choice? For novice decision makers with little experience, decision makers faced with simple problems that have few alternative courses of action, or when the cost of searching out and evaluating alternatives is low, the rational model provides a fairly accurate description of the decision process.36 But such situations are the exception. Most decisions in the real world don’t follow the rational model. For instance, people are usually content to find an acceptable or reasonable solution to their problem rather than an optimal one. As such, decision makers generally make limited use of their creativity. Choices tend to be confined to the neighborhood of the problem symptom and to the neighborhood of the current alternative. As one expert in decision making put it: “Most

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significant decisions are made by judgment, rather than by a defined prescriptive model.”37 The following discusses a large body of evidence to provide you with a more accurate description of how most decisions in organizations are actually made.38

Bounded Rationality When you considered which college to attend, did you look at every viable alternative? Did you carefully identify all the criteria that were important in your decision? Did you evaluate each alternative against the criteria in order to find the optimal college? We expect the answers to these questions is probably “No.” Well, don’t feel bad. Few people made their college choice this way. Instead of optimizing, you probably satisficed. When faced with a complex problem, most people respond by reducing the problem to a level at which it can be readily understood. This is because the limited information-processing capability of human beings makes it impossible to assimilate and understand all the information necessary to optimize.39 So people satisfice; that is, they seek solutions that are satisfactory and sufficient. Because the capacity of the human mind for formulating and solving complex problems is far too small to meet the requirements for full rationality, individuals operate within the confines of bounded rationality. They construct simplified models that extract the essential features from problems without capturing all their complexity.40 Individuals can then behave rationally within the limits of the simple model. How does bounded rationality work for the typical individual? Once a problem is identified, the search for criteria and alternatives begins. But the list of criteria is likely to be far from exhaustive. The decision maker will identify a limited list made up of the more conspicuous choices. These are the choices that are easy to find and that tend to be highly visible. In most cases, they will represent familiar criteria and previously tried-and-true solutions. Once this limited set of alternatives is identified, the decision maker will begin reviewing them. But the review will not be comprehensive—not all the alternatives will be carefully evaluated. Instead, the decision maker will begin with alternatives that differ only in a relatively small degree from the choice currently in effect. Following along familiar and well-worn paths, the decision maker proceeds to review alternatives only until he or she identifies an alternative that is “good enough”—one that meets an acceptable level of performance. The first alternative that meets the “good enough” criterion ends the search. So the final solution represents a satisficing choice rather than an optimal one. One of the more interesting aspects of bounded rationality is that the order in which alternatives are considered is critical in determining which alternative is selected. Remember, in the fully rational decision-making model, all alternatives are eventually listed in a hierarchy of preferred order. Because all alternatives are considered, the initial order in which they are evaluated is irrelevant.

bounded rationality

Making decisions by constructing simplified models that extract the essential features from problems without capturing all their complexity.

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Operating within the confines of bounded rationality, Rose Marie Bravo revitalized the British retailer Burberry Group PLC when she became CEO. Based on her retail experience as president of Saks in the United States, Bravo decided to capitalize on Burberry’s quality heritage and trademark plaid design as the solution to the company’s stagnant growth. She repositioned Burberry as a global luxury retailer by opening stores around the world, running a celebrity ad campaign with female supermodel Ben Grimes to redefine the brand’s image as hip for the younger generation, and by using the plaid design on new lines of swimwear, footwear, and children’s clothing.

Every potential solution would get a full and complete evaluation. But this isn’t the case with bounded rationality. Assuming that a problem has more than one potential solution, the satisficing choice will be the first acceptable one the decision maker encounters. Because decision makers use simple and limited models, they typically begin by identifying alternatives that are obvious, ones with which they are familiar, and those not too far from the status quo. The solutions that depart least from the status quo and meet the decision criteria are those most likely to be selected. A unique and creative alternative may present an optimizing solution to the problem; however, it’s unlikely to be chosen because an acceptable solution will be identified well before the decision maker is required to search very far beyond the status quo.

Common Biases and Errors Decision makers engage in bounded rationality, but an accumulating body of research tells us that decision makers also allow systematic biases and errors to creep into their judgments.41 These come out of attempts to short-cut the decision process. To minimize effort and avoid difficult trade-offs, people tend to rely too heavily on experience, impulses, gut feelings, and convenient “rules of thumb.” In many instances, these shortcuts are helpful. However, they can lead to severe distortions from rationality. The following material highlights the most common distortions. Overconfidence Bias It’s been said that “no problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence.”42 When we’re given factual questions and asked to judge the probability that our answers are correct, we tend to be far too optimistic. For instance, studies have found that, when people say they’re 65 to 70 percent confident that they’re right, they were actually correct only about 50 percent of the time.43 And when they say they’re 100 percent sure, they tended to be 70 to 85

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percent correct.44 Here’s another interesting example. In one random-sample national poll, 90 percent of Americans said they expected to go to heaven. But in another random-sample national poll, only 86 percent thought Mother Theresa was in heaven. Talk about an overconfidence bias! From an organizational standpoint, one of the more interesting findings related to overconfidence is that those individuals whose intellectual and interpersonal abilities are weakest are most likely to overestimate their performance and ability.45 So as managers and employees become more knowledgeable about an issue, the less likely they are to display overconfidence.46 And overconfidence is most likely to surface when organizational members are considering issues or problems that are outside their area of expertise.47 Anchoring Bias The anchoring bias is a tendency to fixate on initial information. Once set, we then fail to adequately adjust for subsequent information.48 The anchoring bias occurs because our mind appears to give a disproportionate amount of emphasis to the first information it receives. So initial impressions, ideas, prices, and estimates carry undue weight relative to information received later.49 Anchors are widely used by people in professions—such as advertising, management, politics, real estate, and law—where persuasion skills are important. For instance, in a mock jury trial, one set of jurors was asked by the plaintiff’s attorney to make an award in the range of $15 million to $50 million. Another set of jurors was asked for an award in the range of $50 million to $150 million. Consistent with the anchoring bias, the median awards were $15 million versus $50 million in the two conditions.50 Consider the role of anchoring in negotiations and interviews. Any time a negotiation takes place, so does anchoring. As soon as someone states a number, your ability to objectively ignore that number has been compromised. For instance, when a prospective employer asks how much you were making in your prior job, your answer typically anchors the employer’s offer. You may want to keep this in mind when you negotiate your salary, but remember to set the anchor only as high as you realistically can (in other words, it probably won’t work to ask for as much as Donald Trump makes). Confirmation Bias The rational decision-making process assumes that we objectively gather information. But we don’t. We selectively gather information. The confirmation bias represents a specific case of selective perception. We seek out information that reaffirms our past choices, and we discount information that contradicts past judgments.51 We also tend to accept information at face value that confirms our preconceived views, while being critical and skeptical of information that challenges these views. Therefore, the information we gather is typically biased toward supporting views we already hold. This confirmation bias influences where we go to collect evidence because we tend to seek out places that are more likely to tell us what we want to hear. It also leads us to give too much weight to supporting information and too little to contradictory information.

anchoring bias

A tendency to fixate on initial information, from which we then fail to adequately adjust for subsequent information.

confirmation bias The tendency to seek out information that reaffirms past choices and to discount information that contradicts past judgments.

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Availability Bias Many more people suffer from fear of flying than fear of driving in a car. The reason is that many people think flying is more dangerous. It isn’t, of course. With apologies ahead of time for this graphic example, if flying on a commercial airline was as dangerous as driving, the equivalent of two 747s filled to capacity would have to crash every week, killing all aboard, to match the risk of being killed in a car accident. But the media gives a lot more attention to air accidents, so we tend to overstate the risk of flying and understate the risk of driving. This illustrates an example of the availability bias, which is the tendency for people to base their judgments on information that is readily available to them.52 Events that evoke emotions, that are particularly vivid, or that have occurred more recently tend to be more available in our memory. As a result, we tend to be prone to overestimating unlikely events like an airplane crash. The availability bias can also explain why managers, when doing annual performance appraisals, tend to give more weight to recent behaviors of an employee than those behaviors of six or nine months ago. Representative Bias Many inner-city African American male teenagers in the United States talk about the goal of playing basketball in the NBA.53 In reality, these young people have a far better chance of becoming medical doctors than they do of playing in the NBA, but these kids are suffering from a representative bias. They tend to assess the likelihood of an occurrence by inappropriately considering the current situation as identical to past ones.54 They hear about a young man from their neighborhood 10 years ago who went on to play professional basketball. Or they watch NBA games on television and think that those players are like them. We are all guilty of falling into the representative bias at times. Managers, for example, frequently predict the performance of a new product by relating it to a previous product’s success. Or if three graduates from the same college were hired and turned out to be poor performers, managers may predict that a current job applicant from the same college will not be a good employee. Escalation of Commitment Another distortion that creeps into decisions in practice is a tendency to escalate commitment when a decision stream represents a series of decisions.55 Escalation of commitment refers to staying with a decision even when there is clear evidence that it’s wrong. For example, consider a friend that has been dating his girlfriend for about 4 years. Although he admitted to you that things weren’t going too well in the relationship, he said that he was still going to marry her. His justification: “I have a lot invested in the relationship!” It has been well documented that individuals escalate commitment to a failing course of action when they view themselves as responsible for the failure.56 That is, they “throw good money after bad” to demonstrate that their initial decision wasn’t wrong and to avoid having to admit they made a mistake. Escalation of commitment is also congruent with evidence that people try to appear consistent in what they say and do. Increasing commitment to previous actions conveys consistency. Escalation of commitment has obvious implications for managerial decisions. Many an organization has suffered large losses because a manager was determined to prove his or her original decision was right by continuing to commit resources to what was a lost cause from the beginning. In addition, consistency is a characteristic often associated with effective leaders. So managers, in an effort to appear effective, may be motivated to be consistent when switching to another course of action may be preferable. In actuality, effective managers are those who are able to differentiate between situations in which persistence will pay off and situations in which it will not.

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Research suggests that sports teams give more playing time to highly drafted players even if their recent performance is no better than lower-drafted players. This is an example of escalation of commitment. Dwight Howard of the Orlando Magic, shown here putting up a shot, was the top pick in the 2004 draft. Escalation of commitment predicts that the Orlando Magic will play Dwight more, even if he is no better than a lower-draft pick, as a means of justifying their decision. Of course it’s possible that Dwight will fully reward Orlando for picking him.

Randomness Error Human beings have a lot of difficulty dealing with chance. Most of us like to believe we have some control over our world and our destiny. Although we undoubtedly can control a good part of our future by rational decision making, the truth is that the world will always contain random events. Our tendency to believe we can predict the outcome of random events is the randomness error. Consider stock-price movements. In spite of the fact that short-term stockprice changes are essentially random, a large proportion of investors—or their financial advisors—believe they can predict the direction that stock prices will move. For instance, when a group of subjects was given stock prices and trend information, these subjects were approximately 65 percent certain they could predict the direction stocks would change. In actuality, these individuals were correct only 49 percent of the time—about what you’d expect if they were just guessing.57 Decision making becomes impaired when we try to create meaning out of random events. One of the most serious impairments caused by random events is when we turn imaginary patterns into superstitions.58 These can be completely contrived (”I never make important decisions on a Friday the 13th”) or evolve from a certain pattern of behavior that has been reinforced previously (Tiger Woods often wears a red shirt during the final round of a golf tournament because he won many junior golf tournaments while wearing red shirts). Although many of us engage in some superstitious behavior, it can

availability bias The tendency for people escalation of commitment to base their judgments on information that is readily available to them.

representative bias

Assessing the likelihood of an occurrence by inappropriately considering the current situation as identical to ones in the past.

An increased commitment to a previous decision in spite of negative information.

randomness error The tendency of individuals to believe that they can predict the outcome of random events.

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be debilitating when it affects daily judgments or biases major decisions. At the extreme, some decision makers become controlled by their superstitions—making it nearly impossible for them to change routines or objectively process new information. Winner’s Curse The winner’s curse is a decision-making dictum that argues that the winning participants in an auction typically pay too much for the winning item. The winner’s curse occurs in competitive bidding. Some buyers will underestimate the value of an item and others will overestimate it, and the highest bidder (the winner) will be the one who overestimated the most. Therefore, unless the bidders dramatically undervalue, there is a good chance that the “winner” paid too much for the item. Imagine, for example, that all members of your class are bidding on a painting. Obviously, there will be variation in bids, and the person who places the highest bid will receive the painting (in return for the amount that he or she bid). Unless people grossly underestimated the value of the painting, it’s likely that the highest bidder will have paid too much. Logic predicts that the winner’s curse gets stronger as the number of bidders increases. This is because the more bidders there are, the more likely it is that some of them have greatly overestimated the good’s value. So, beware of auctions in which an unexpectedly large number of bidders are involved. Hindsight Bias The hindsight bias is the tendency for us to believe falsely that we’d have accurately predicted the outcome of an event, after that outcome is actually known.59 When something happens and we have accurate feedback on the outcome, we seem to be pretty good at concluding that this outcome was relatively obvious. For instance, a lot more people seem to have been sure about the inevitability of who would win the Super Bowl on the day after the game than they were the day before.60 What explains the hindsight bias? We apparently aren’t very good at recalling the way an uncertain event appeared to us before we find out the actual results of that event. However, we seem to be fairly well adept at reconstructing the past by overestimating what we knew beforehand based upon what we learned later. So the hindsight bias seems to be a result of both selective memory and our ability to reconstruct earlier predictions.61 The hindsight bias reduces our ability to learn from the past. It permits us to think that we’re better at making predictions than we really are and can result in our being more confident about the accuracy of future decisions than we have a right to be. If, for instance, your actual predictive accuracy is only 40 percent, but you think it’s 90 percent, you’re likely to become falsely overconfident and less vigilant in questioning your predictive skills.

Intuition Intuitive decision making is an unconscious process created out of distilled experience.62 It doesn’t necessarily operate independently of rational analysis; rather, the two complement each other. And, importantly, intuition can be a powerful force in decision making. For instance, research on chess playing provides an excellent illustration of how intuition works.63 Novice chess players and grand masters were shown an actual, but unfamiliar, chess game with about 25 pieces on the board. After 5 or 10 seconds, the pieces were removed and each was asked to reconstruct the pieces by position. On average, the grand master could put 23 or 24 pieces in their correct squares, while the novice was able to replace only 6. Then the exercise

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Google and the Winner’s Curse One way the winner’s curse is revealed is in Initial Public Offering (IPO) pricing schemes. IPOs occur when a company decides to “go public”—offer itself for sale to investors. In such a case, potential investors need to estimate what the market value of a company’s stock will be lest they pay too much for the company’s stock. Here’s how the winner’s curse operated with the pricing of Google. Google auctioned off a portion of its stock, with the shares sold to those who paid the most per share. Google explicitly warned potential investors of the winner’s curse in its SEC registration statement (the company warned: “The auction process for our public offering may result in a phenomenon known as

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the ‘winner’s curse,’ and, as a result, investors may experience significant losses”). Despite this warning, the winning investors paid more than 10 times the estimated pre-IPO value for Google shares (the estimated value of the Google shares was $2.7 billion before the IPO, compared to the $36 billion that was estimated to be paid for the shares). The winner’s curse is hardly confined to Google or other IPOs. Any time auctions or bidding is involved, the potential of the winner’s curse is very real. Researchers have argued that companies such as Tyco, MCI-WorldCom, and Bank One overpaid for acquisitions as a result of failing to learn the lessons of the winner’s curse. So, how can the winner’s curse be avoided? Savvy bidders will avoid the winner’s curse by bid shading, or placing a bid that is below what they believe the good is worth. This may make it less likely that the bidder will win the auction, but it

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also will protect them from overpaying in the cases where they do win. Savvy bidders know that they don’t want to win if it means they will pay more than a good is worth. For example, assume that before the auction you think a share of Google is worth $100. But you figure that if you end up being a winner in the auction it means that most investors think Google is worth less than $100 (by the way, some investors paid more than $200 for Google stock!). Because fear of the winner’s curse can scare away potential bidders, auction sites need to put in place mechanisms that protect novice buyers from accidentally overpaying. Some ideas: 1. Provide lots of information about the items for sale. 2. Draw as many informed bidders to your auction site as possible. 3. Share the risk. Bidders will pay more if the seller or auctioneer provides a warranty.

Sources: Based on J. D. Miller,“Google’s ‘Winner’s Curse’.” Published 05/04/2004; G.Anandalingam and Henry C. Lucas,“Beware the Winner’s Curse:Victories That Can Sink You and Your Company,” November 2004; G. P. Zachary, “Google’s Dirty Little Secrets: Investors May Suffer from Winner’s Curse,” Sunday, August 8, 2004, Page E–3. D. Marasco, “The Winner’s Curse,” http://economics.about.com/cs/baseballeconomics/a/winners_curse.htm.

was changed. This time the pieces were placed randomly on the board. Again, the novice got only about 6 correct, but so did the grand master! The second exercise demonstrated that the grand master didn’t have any better memory than the novice. What the grand master did have was the ability, based on the experience of having played thousands of chess games, to recognize patterns and clusters of pieces that occur on chessboards in the course of games. Studies further show that chess professionals can play 50 or more games simultaneously, in which decisions often must be made in only seconds, and exhibit only a moderately lower level of skill than when playing one game under tournament conditions, where decisions take half an hour or longer. The expert’s experience allows him or her to recognize the pattern in a situation and draw on previously learned information associated with that pattern to arrive at a decision choice quickly. The result is that the intuitive decision maker can decide rapidly based on what appears to be very limited information.

winner’s curse A decision-making dictum that argues that the winning participants in an auction typically pay too much for the winning item.

hindsight bias The tendency for us to believe falsely that we’d have accurately predicted the outcome of an event, after that outcome is actually known.

intuitive decision making An unconscious process created out of distilled experience.

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Master chess players Vladimir Kramnik and Garry Kasparov effectively use intuitive decision making during chess tournaments. Based on their expertise from playing thousands of games, these chess champs can quickly choose from among alternative moves while under great pressure to make the right decision.

For most of the twentieth century, experts believed that the use of intuition by decision makers was irrational or ineffective. That’s no longer the case.64 There is growing recognition that rational analysis has been overemphasized and that, in certain instances, relying on intuition can improve decision making. When are people most likely to use intuitive decision making? Eight conditions have been identified: (1) when a high level of uncertainty exists; (2) when there is little precedent to draw on; (3) when variables are less scientifically predictable; (4) when “facts” are limited; (5) when facts don’t clearly point the way; (6) when analytical data are of little use; (7) when there are several plausible alternative solutions from which to choose, with good arguments for each; and (8) when time is limited and there is pressure to come up with the right decision.65 Although intuitive decision making has gained respectability, don’t expect people—especially in North America, Great Britain, and other cultures in which rational analysis is the approved way of making decisions—to readily acknowledge that they’re using it. People with strong intuitive abilities don’t usually tell their colleagues how they reached their conclusions. And since rational analysis continues to be more socially desirable, intuitive ability is often disguised or hidden. As one top executive commented, “Sometimes one must dress up a gut decision in ‘data clothes’ to make it acceptable or palatable, but this fine-tuning is usually after the fact of the decision.”66

Individual Differences Decision making in practice is characterized by bounded rationality, common biases and errors, and the use of intuition. In addition, there are individual differences that create deviations from the rational model. In this section, we look at two individual-difference variables: personality and gender. Personality There hasn’t been much research on personality and decision making. One possible reason is that most researchers who conduct decisionmaking research aren’t trained to investigate personality. However, the studies that have been conducted suggest that personality does influence decision mak-

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ing. The research has considered conscientiousness (as you will recall, this is one of the Big Five traits we discussed in Chapter 4) and self-esteem (which we also considered in Chapter 4). Let’s discuss each of these. First, some research has shown that specific facets of conscientiousness— rather than the broad trait itself—affects escalation of commitment (see p. 164).67 Interestingly, one study revealed that the two facets of conscientiousness—achievement-striving and dutifulness—actually had opposite effects on escalation of commitment. For example, achievement-striving people were more likely to escalate their commitment, whereas dutiful people were less likely to escalate. Why might this be the case? Generally, achievementoriented people hate to fail, so they escalate their commitment hoping to forestall failure. Dutiful people, however, will be more inclined to do what they see as best for the organization. Second, achievement-striving individuals appear to be more susceptible to the hindsight bias, perhaps because they have a greater need to justify the appropriateness of their actions.68 Unfortunately, we don’t have evidence on whether dutiful people are immune to the hindsight bias. Finally, people with high self-esteem appear to be especially susceptible to the self-serving bias. Why? Because high self-esteem people are strongly motivated to maintain their self-esteem so they use the self-serving bias to preserve it. That is, they blame others for their failures while taking credit for their successes.69 Gender Recent research on rumination offers insights into gender differences in decision making.70 Overall, the evidence indicates that women analyze decisions more than men do. Rumination refers to reflecting at length. In terms of decision making, it means overthinking about problems. And women, in general, are more likely than men to engage in rumination. Twenty years of study find that women spend much more time than men in analyzing the past, present, and future. They’re more likely to overanalyze problems before making a decision and rehash the decision once it has been made. On the positive side, this is likely to lead to more careful consideration of problems and choices. However, it can make problems harder to solve, increase regret over past decisions, and increase depression. On this last point, women are nearly twice as likely as men to develop depression. Why women ruminate more than men is not clear. Several theories have been suggested. One view is that parents encourage and reinforce the expression of sadness and anxiety more in girls than in boys. Another theory is that women, more than men, base their self-esteem and well-being on what others think of them. A third theory is that women are more empathetic and more affected by events in others’ lives, so they have more to ruminate about. This rumination tendency appears to be moderated by age. Gender differences surface early. By age 11, for instance, girls are ruminating more than boys. But this gender difference seems to lessen with age. Differences are largest during young adulthood and smallest after age 65, when both men and women ruminate the least.71

Organizational Constraints Organizations can constrain decision makers, creating deviations from the rational model. Managers, for instance, shape their decisions to reflect the organization’s performance evaluation and reward system, to comply with the organization’s formal regulations, and to meet organizationally imposed

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time constraints. Previous organizational decisions also act as precedents to constrain current decisions. Performance Evaluation Managers are strongly influenced in their decision making by the criteria on which they are evaluated. If a division manager believes that the manufacturing plants under his responsibility are operating best when he hears nothing negative, we shouldn’t be surprised to find his plant managers spending a good part of their time ensuring that negative information doesn’t reach the division boss. Similarly, if a college dean believes that an instructor should never fail more than 10 percent of her students—to fail more reflects on the instructor’s ability to teach—we should expect that instructors who want to receive favorable evaluations will decide not to fail too many students. Reward Systems The organization’s reward system influences decision makers by suggesting to them what choices are preferable in terms of personal payoff. For example, if the organization rewards risk aversion, managers are more likely to make conservative decisions. From the 1930s through the mid-1980s, General Motors consistently gave out promotions and bonuses to managers who kept a low profile, avoided controversy, and were good team players. The result was that GM managers became very adept at dodging tough issues and passing controversial decisions on to committees. Formal regulations shape the decisions of individuals when organizations standardize the behavior of their members. McDonald’s, for example, requires that its restaurant crews follow rules and regulations for food preparation and service to meet the company’s high standards of food quality and safety and consistent and dependable service.

Formal Regulations David Gonzalez, a shift manager at a Taco Bell restaurant in San Antonio, Texas, describes constraints he faces on his job: “I’ve got rules and regulations covering almost every decision I make—from how to make a burrito to how often I need to clean the restrooms. My job doesn’t come with much freedom of choice.” David’s situation is not unique. All but the smallest of organizations create rules, policies, procedures, and other formalized regulations in order to standardize the behavior of their members. By programming decisions, organizations are able to get individuals to achieve high levels of performance without paying for the years of experience that would be necessary in the absence of regulations. And of course, in so doing, they limit the decision maker’s choices. System-Imposed Time Constraints Organizations impose deadlines on decisions. For instance, department budgets need to be completed by next Friday. Or the report on new-product development has to be ready for the executive committee to review by the first of the month. A host of decisions must be made quickly in order to stay ahead of the competition and keep customers satisfied. And almost all important decisions come with explicit deadlines. These conditions create time pressures on decision makers and often make it difficult, if not impossible, to gather all the information they might like to have before making a final choice. Historical Precedents Decisions aren’t made in a vacuum. They have a context. In fact, individual decisions are more accurately characterized as points in a stream of decisions. Decisions made in the past are ghosts that continually haunt current choices—that is, commitments that have already been made constrain current options. To use a social situation as an example, the decision you might make

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after meeting “Mr. or Ms. Right” is more complicated if you’re already married than if you’re single. Prior commitments—in this case, having chosen to get married—constrain your options. Consider another example. Government budget decisions also offer an illustration of our point. It’s common knowledge that the largest determining factor of the size of any given year’s budget is last year’s budget.72 Choices made today, therefore, are largely a result of choices made over the years.

Cultural Differences The rational model makes no acknowledgment of cultural differences. But Indonesians, for instance, don’t necessarily make decisions the same way that Australians do. Therefore, we need to recognize that the cultural background of the decision maker can have significant influence on the selection of problems, depth of analysis, the importance placed on logic and rationality, or whether organizational decisions should be made autocratically by an individual manager or collectively in groups.73 Cultures, for example, differ in terms of time orientation, the importance of rationality, their belief in the ability of people to solve problems, and their preference for collective decision making. Differences in time orientation help us understand why managers in Egypt will make decisions at a much slower and more deliberate pace than their American counterparts. Whereas rationality is valued in North America, that’s not true everywhere in the world. A North American manager might make an important decision intuitively but knows that it’s important to appear to proceed in a rational fashion. This is because rationality is highly valued in the West. In countries such as Iran, where rationality is not deified, efforts to appear rational are not necessary. Some cultures emphasize solving problems, while others focus on accepting situations as they are. The United States falls in the former category; Thailand and Indonesia are examples of cultures that fall into the latter category. Because problem-solving managers believe they can and should change situations to their benefit, American managers might identify a problem long before their Thai or Indonesian counterparts would choose to recognize it as such. Decision making by Japanese managers is much more group-oriented than in the United States. The Japanese value conformity and cooperation. So before Japanese CEOs make an important decision, they collect a large amount of information, which is then used in consensus-forming group decisions.

What About Ethics in Decision Making? No contemporary discussion of decision making would be complete without the inclusion of ethics because ethical considerations should be an important criterion in organizational decision making. This is certainly more true today than at any time in the recent past given the scandals at companies like Enron, WorldCom, Tyco International, Arthur Andersen, Citigroup, Merrill Lynch, ImClone Systems, Adelphia Communications, Sunbeam, and Rite Aid. In this final section, we present three different ways to frame decisions ethically and look at how ethical standards vary across national cultures.

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Three Ethical Decision Criteria An individual can use three different criteria in making ethical choices.74 The first is the utilitarian criterion, in which decisions are made solely on the basis of their outcomes or consequences. The goal of utilitarianism is to provide the greatest good for the greatest number. This view tends to dominate business decision making. It is consistent with goals like efficiency, productivity, and high profits. By maximizing profits, for instance, a business executive can argue he is securing the greatest good for the greatest number—as he hands out dismissal notices to 15 percent of his employees. Another ethical criterion is to focus on rights. This calls on individuals to make decisions consistent with fundamental liberties and privileges as set forth in documents like the Bill of Rights. An emphasis on rights in decision making means respecting and protecting the basic rights of individuals, such as the right to privacy, to free speech, and to due process. For instance, use of this criterion would protect whistle-blowers—individuals who report unethical or illegal practices by their employer to outsiders—when they reveal unethical practices by their organization to the press or government agencies on the grounds of their right to free speech. A third criterion is to focus on justice. This requires individuals to impose and enforce rules fairly and impartially so that there is an equitable distribution of benefits and costs. Union members typically favor this view. It justifies paying people the same wage for a given job, regardless of performance differences, and using seniority as the primary determination in making layoff decisions. Each of these three criteria has advantages and liabilities. A focus on utilitarianism promotes efficiency and productivity, but it can result in ignoring the rights of some individuals, particularly those with minority representation in the organization. The use of rights as a criterion protects individuals from injury and is consistent with freedom and privacy, but it can create an overly legalistic work environment that hinders productivity and efficiency. A focus on justice protects the interests of the underrepresented and less powerful, but it can encourage a sense of entitlement that reduces risk taking, innovation, and productivity.

“Ethical People Don’t Do Unethical Things” his statement is mostly true. People with high ethical standards are less likely to engage in unethical practices, even in organizations or situations in which there are strong pressures to conform. The essential issue that this statement addresses is whether ethical behavior is more a function of the individual or the situational context. The evidence indicates that people with high ethical principles will follow them in spite of what others do or the dictates of organizational norms.75 But when an individual’s ethical and moral development are not of the highest level, he or she is more likely to be influenced by strong cultures. This is true even when those strong cultures encourage questionable practices.

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Because ethical people essentially avoid unethical practices, managers should be encouraged to screen job candidates (through testing and background investigations) to determine their ethical standards. By seeking out people with integrity and strong ethical principles, the organization increases the likelihood that employees will act ethically. Of course, unethical practices can be further minimized by providing individuals with a supportive work climate.76 This would include clear job descriptions, a written code of ethics, positive management role models, the evaluating and rewarding of means as well as ends, and a culture that encourages individuals to openly challenge questionable practices. ■

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Decision makers, particularly in for-profit organizations, tend to feel safe and comfortable when they use utilitarianism. A lot of questionable actions can be justified when framed as being in the best interests of “the organization” and stockholders. But many critics of business decision makers argue that this perspective needs to change.77 Increased concern in society about individual rights and social justice suggests the need for managers to develop ethical standards based on nonutilitarian criteria. This presents a solid challenge to today’s managers because making decisions using criteria such as individual rights and social justice involves far more ambiguities than using utilitarian criteria such as effects on efficiency and profits. This helps to explain why managers are increasingly criticized for their actions. Raising prices, selling products with questionable effects on consumer health, closing down inefficient plants, laying off large numbers of employees, moving production overseas to cut costs, and similar decisions can be justified in utilitarian terms. But that may no longer be the single criterion by which good decisions should be judged.

Ethics and National Culture What is seen as an ethical decision in China may not be seen as such in Canada. The reason is that there are no global ethical standards.78 Contrasts between Asia and the West provide an illustration.79 Because bribery is commonplace in countries such as China, a Canadian working in China might face the dilemma: Should I pay a bribe to secure business if it is an accepted part of that country’s culture? Or how about this for a shock? A manager of a large U.S. company operating in China caught an employee stealing. Following company policy, she fired him and turned him over to the local authorities. Later, she was horrified to learn that the employee had been summarily executed.80 Although ethical standards may seem ambiguous in the West, criteria defining right and wrong are actually much clearer in the West than in Asia. Few issues are black and white there; most are gray. The need for global organizations to establish ethical principles for decision makers in countries such as India and China, and modifying them to reflect cultural norms, may be critical if high standards are to be upheld and if consistent practices are to be achieved.

Summary and Implications for Managers Perception Individuals behave in a given manner based not on the way their external environment actually is but, rather, on what they see or believe it to be. It’s the employee’s perception of a situation that becomes the basis for behavior. Whether or not a manager successfully plans and organizes the work of employees and actually helps them to structure their work more efficiently and effec-

utilitarianism Decisions made to provide whistle-blowers Individuals who report the greatest good for the greatest number.

unethical practices by their employer to outsiders.

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tively is far less important than how employees perceive the manager’s efforts. Similarly, issues such as fair pay for work performed, the validity of performance appraisals, and the adequacy of working conditions are not judged by employees in a way that ensures common perceptions; nor can we be assured that individuals will interpret conditions about their jobs in a favorable light. Therefore, to be able to influence productivity, it’s necessary to assess how workers perceive their jobs. Absenteeism, turnover, and job satisfaction are also reactions to the individual’s perceptions. Dissatisfaction with working conditions or the belief that there is a lack of promotion opportunities in the organization are judgments based on attempts to create meaning out of one’s job. The employee’s conclusion that a job is good or bad is an interpretation. Managers must spend time understanding how each individual interprets reality and, when there is a significant difference between what is seen and what exists, try to eliminate the distortions. Failure to deal with the differences when individuals perceive the job in negative terms will result in increased absenteeism and turnover and lower job satisfaction. Individual Decision Making Individuals think and reason before they act. It is because of this that an understanding of how people make decisions can be helpful for explaining and predicting their behavior. Under some decision situations, people follow the rational decision-making model. But for most people, and most nonroutine decisions, this is probably more the exception than the rule. Few important decisions are simple or unambiguous enough for the rational model’s assumptions to apply. So we find individuals looking for solutions that satisfice rather than optimize, injecting biases and prejudices into the decision process, and relying on intuition. Given the evidence we’ve described on how decisions are actually made in organizations, what can managers do to improve their decision making? We offer five suggestions.

Exhibit 5-5

Toward Reducing Biases and Errors

Focus on goals. Without goals, you can’t be rational, you don’t know what information you need, you don’t know which information is relevant and which is irrelevant, you’ll find it difficult to choose between alternatives, and you’re far more likely to experience regret over the choices you make. Clear goals make decision making easier and help you to eliminate options that are inconsistent with your interests. Look for information that disconfirms your beliefs. One of the most effective means for counteracting overconfidence and the confirmation and hindsight biases is to actively look for information that contradicts your beliefs and assumptions. When we overtly consider various ways we could be wrong, we challenge our tendencies to think we’re smarter than we actually are. Don’t try to create meaning out of random events. The educated mind has been trained to look for cause-and-effect relationships. When something happens, we ask why. And when we can’t find reasons, we often invent them. You have to accept that there are events in life that are outside your control. Ask yourself if patterns can be meaningfully explained or whether they are merely coincidence. Don’t attempt to create meaning out of coincidence. Increase your options. No matter how many options you’ve identified, your final choice can be no better than the best of the option set you’ve selected. This argues for increasing your decision alternatives and for using creativity in developing a wide range of diverse choices. The more alternatives you can generate, and the more diverse those alternatives, the greater your chance of finding an outstanding one. Source: S. P. Robbins, Decide & Conquer: Making Winning Decisions and Taking Control of Your Life (Upper Saddle River, NJ: Financial Times/Prentice Hall, 2004), pp. 164–68.

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First, analyze the situation. Adjust your decision-making approach to the national culture you’re operating in and to the criteria your organization evaluates and rewards. For instance, if you’re in a country that doesn’t value rationality, don’t feel compelled to follow the rational decision-making model or even to try to make your decisions appear rational. Similarly, organizations differ in terms of the importance they place on risk, the use of groups, and the like. Adjust your decision approach to ensure that it’s compatible with the organization’s culture. Second, be aware of biases. Then try to minimize their impact. Exhibit 5-5 offers some suggestions. Third, combine rational analysis with intuition. These are not conflicting approaches to decision making. By using both, you can actually improve your decision-making effectiveness. As you gain managerial experience, you should feel increasingly confident in imposing your intuitive processes on top of your rational analysis. Finally, try to enhance your creativity. Overtly look for novel solutions to problems, attempt to see problems in new ways, and use analogies. In addition, try to remove work and organizational barriers that might impede your creativity.

Point

Counterpoint When in Doubt, Do!

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ife is full of decisions and choices. The real question is not “To be, or not to be,” but rather “To do, or not to do?” For example, should I confront my professor about my midterm grade? Should I buy a new car? Should I accept a new job? Should I choose this major? Very often, we are unsure of our decision. In such cases, it is almost always better to choose action over inaction. In life, people more often regret inaction than action. Take the following simple example: Act Carry Umbrella Don’t Carry Umbrella

State Rain

Shine

Dry (except your feet!) Miserable drenching

Inconvenience Bliss unalloyed

Say you carry an umbrella and it doesn’t rain, or you don’t carry an umbrella and it does rain. In which situation are you worse off? Would you rather experience the mild inconvenience of the extra weight of the umbrella or get drenched? Chances are you’ll regret inaction more than action. Research shows that once a decision has been made, inaction is regretted more than action. Although we often regret actions in their immediate aftermath, over time regrets over actions decline markedly, whereas regrets over missed opportunities increase. For example, you finally decide to take that trip to Europe. You had an amazing time, but a few weeks after you get back, your credit card bill arrives—and it isn’t pretty. Unfortunately, you have to work overtime and miss a few dinners out with friends to pay off the bills. A few months down the road, however, you decide to reminisce by looking through your photos from the trip, and sure enough you can’t imagine never having gone. So, when in doubt, just do!

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t’s just silly to think that when in doubt, you should always act. Mistakes will undoubtedly be made when following such simple advice. For example, you’re out of work, but you still decide to purchase your dream car—a BMW that is fully loaded. Not the smartest idea. So why is the motto “just do it” dangerous? Because there are two types of regrets that people can have: hot regret, in which an individual kicks herself for having caused something bad, and wistful regret, in which she fantasizes about how things might have turned out. The danger is that actions are more likely to lead to anguish or hot regret and inaction is more likely to lead to wistful regret. So the bottom line is that we can’t apply simple credos such as “just do it” to important decisions.81

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Questions for Review 1. Define perception. 2. What is attribution theory? What are its implications for explaining organizational behavior? 3. How are our perceptions of our own actions different from our perceptions of the actions of others? 4. How does selectivity affect perception? Give an example of how selectivity can create perceptual distortion. 5. What is the rational decision-making model? Under what conditions is it applicable? 6. What is the anchoring bias? How does it distort decision making?

7. What is the availability bias? How does it distort decision making? 8. What role does intuition play in effective decision is it likely to be most effective? 9. Describe organizational factors that might constrain decision makers. 10. Are unethical decisions more a function of the individual decision maker or the decision maker’s work environment? Explain.

Questions for Critical Thinking 1. How might the differences in the experiences of students and instructors affect their perceptions of students’ written work and class comments? 2. An employee does an unsatisfactory job on an assigned project. Explain the attribution process that this person’s manager will use to form judgments about this employee’s job performance. 3. “For the most part, individual decision making in organizations is an irrational process.” Do you agree or disagree? Discuss.

4. What factors do you think differentiate good decision makers from poor ones? Relate your answer to the sixstep rational model. 5. Have you ever increased your commitment to a failed course of action? If so, analyze the follow-up decision to increase your commitment and explain why you behaved as you did.

Team Exercise BIASES IN DECISION MAKING Step 1

Answer each of the following problems. 1. The following 10 corporations were ranked by Fortune magazine to be among the 500 largest United Statesbased firms according to sales volume for 2005: Group A: Apple Computer, Hershey Foods, Hilton Hotels, Mattel, Levi Strauss Group B: American International Group, Cardinal Health, Conagra Foods, Ingram Micro, Valero Energy Which group of five organizations listed (A or B) had the larger total sales volume? By what percentage (10 percent, 50 percent, 100 percent, or?) do you think the higher group’s sales exceeded the lower group’s? 2. The best student in your introductory MBA class this past semester writes poetry and is rather shy and small in stature. What was the student’s undergraduate major: Chinese studies or psychology?

3. Which of the following causes more deaths in the United States each year? (a) Stomach cancer (b) Motor vehicle accidents 4. Which would you choose? (a) A sure gain of $240 (b) A 25 percent chance of winning $1,000 and a 75 percent chance of winning nothing. 5. Which would you choose? (a) A sure loss of $750 (b) A 75 percent chance of losing $1,000 and a 25 percent chance of losing nothing. 6. Which would you choose? (a) A sure loss of $3,000 (b) An 80 percent chance of losing $4,000 and a 20 percent chance of losing nothing.

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Step 2 Break into groups of 3 to 5. Compare your answers. Explain why you chose the answers that you did.

Step 3 Your instructor will give you the correct answers to each problem. Now discuss the accuracy of your decisions; the biases evident in the decisions you reached; and how you might improve your decision making to make it more accurate.

Source: These problems are based on examples provided in M. H. Bazerman, Judgment in Managerial Decision Making, 3rd ed. (New York: Wiley, 1994).

Ethical Dilemma FIVE ETHICAL DECISIONS: WHAT WOULD YOU DO? Consider the following ethical decisions. How would you respond to each of the following situations? 1. Assume you’re a middle manager in a company with about a thousand employees. You’re negotiating a contract with a potentially very large customer whose representative has hinted that you could almost certainly be assured of getting his business if you gave him and his wife an all-expense-paid cruise to the Caribbean. You know the representative’s employer wouldn’t approve of such a “payoff,” but you have the discretion to authorize such an expenditure. What would you do? 2. You have an autographed CD by Snoop Dogg. You have put the CD up for sale on eBay. So far, the highest bid is $44.50. You have a friend who has offered you $75 for the CD, commenting to you that he could get $125 for the CD on eBay in a year. Given the current eBay bid and having followed similar events, you know this is highly unlikely. Should you tell your friend that you have listed your CD on eBay? 3. Assume you work for a company and often have to travel on company business. Your company policy on reimbursement for meals while traveling on company business is that you will be repaid for your out-ofpocket costs, not to exceed $80 a day. You don’t need receipts for these expenses—the company will take your word. When traveling, you tend to eat at fastfood places and rarely spend in excess of $20 a day. Most of your colleagues put in reimbursement requests in the range of $55 to $60 a day regardless of

what their actual expenses are. How much would you request for your meal reimbursements? 4. You work for a company that manufactures, markets, and distributes various products, including nutritional supplements, to health food and nutrition stores. One of the company’s best-selling products is an herbal supplement called Rosalife. The company advertises that Rosalife “Achieves all the gains of estrogen hormone replacement therapy without any of the side effects.” One day a research assistant stops by your office with some troubling information. She tells you that while researching another product, she came across a recent study that suggests that Rosalife does not offer the benefits the company claims it does. You show this study to your supervisor, who says, “We’re not responsible for validating non-FDA-controlled products and nobody’s hurt anyway.” Indeed, you know that this is not the case. What is your ethical responsibility? 5. Assume you’re the manager at a gaming company, and you’re responsible for hiring a group to outsource the production of a highly anticipated new game. Because your company is a giant in the industry, there are numerous companies trying to get the bid. As the primary contact, one of the outsourcers offers you some kickbacks if you give them the bid, but ultimately it is up to your bosses to decide on the company. So, you don’t mention the incentive, but push upper management to give the company that offered you the kickback the bid. In this case, is withholding the truth as bad as lying? Why or why not?

Case Incident 1 J&J AUTOMOTIVE SALES Joe Baum loves what he does. He just isn’t crazy about how others see him. Joe is the owner of J&J Automotive Sales, a used-car dealership in southwest St. Louis with about 30 cars on his lot at any time. ”Used-car dealers deal with a pretty bad reputation,” says Joe. Just why, he isn’t sure. He didn’t realize there was such a stigma attached to used-car dealers until he opened

his dealership in 1997. “At Christmas, when family members would ask what I was doing, I’d tell them, and they’d ask me why I’d want to do that.” Regardless of the public’s impression of used-car dealers, Joe loves his business. He enjoys being his own boss. He likes being the sole salesman on his lot. He relishes the diversity of his work—he does everything from buy-

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ing the vehicles, to fixing them up to sell, to helping buyers arrange financing. And, very importantly, Joe likes the opportunity to work with customers. “There are a thousand guys out there selling cars who are better at selling than I am,” Joe says. “I’m more interested in having a relationship.” One of Joe’s strengths is that he loves cars. It’s in his blood—his father worked for a new-car dealer and frequently traded the family’s cars. Joe believes his intimate knowledge of cars makes it easier for him to sell them. “I can tell you whether the car has 75 percent of its brake pad left or if the brake pads are new, because I did it.” To build a meaningful relationship with a customer, Joe has to overcome the stereotype of a used-car salesman. He thinks this might be coming from the hard-sell techniques used by some in his business. “I don’t think it would take a customer long to get jaded if they’re out shopping for a car. That is a hard thing to overcome.”

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It’s frustrating to Joe when potential customers see him as just another shady salesman. Because he works hard to build a customer’s trust, it hurts him when he realizes that he’s failed. “If they [customers] question my integrity, that is the hardest thing.” Questions 1. Explain how you think the stereotype of used-car dealers developed. 2. What, if anything, can Joe do to counter this stereotype? 3. In what ways might this stereotype be beneficial to Joe? To potential customers? 4. AutoNation is #93 on the 2003 Fortune 500. It has created a huge business by exploiting the public’s perception of used-car dealers. What do you think they have done to change the stereotype?

Source: Based on G. Cancelada, “Used-Car Dealer Sees Bad Rep as a Bum Rap,” St. Louis Post-Dispatch, March 24, 2003, p. E1.

Case Incident 2 WHISTLE-BLOWERS: SAINTS OR SINNERS? Corporate whistle-blowers, individuals who report company wrongdoings, are often lauded for their courage and integrity. For example, one famous whistle-blower, former Enron executive Sherron Watkins, was named by Time magazine as one of 2002’s Persons of the Year. Given that whistle-blowers face unemployment, and, often times, ridicule from their company, many people do not come forward to report illegal activity. To encourage whistleblowers, the whistle-blower law, adopted in 1986, pays informants as much as 30 percent of legal fines reaped during lawsuits. With settlements often exceeding $100 million, whistle-blowers can sometimes see huge payoffs. Some experts are concerned that these payoffs are creating a culture where employees quickly report wrongdoings instead of trying to rectify the situation internally. Douglas Durand, for example, was a former vice president of sales at TAP Pharmaceutical Products. In 1995, he began to suspect that TAP was conspiring with doctors to defraud Medicare. Pharmaceutical companies routinely provide doctors with free samples of the latest drugs; however, Durand believed that TAP was working with doctors to bill Medicare for the free drugs, a practice that is against federal law. Later that same year, Durand became more worried when he discovered that TAP had decided to pay a 2 percent fee to individual doctors to cover “administrative costs”—a kickback in Durand’s opinion. Durand then began preparing to blow the whistle on TAP and its affiliates. “I wanted to do the right thing,” he says. After being referred to attorney Elizabeth Ainslie by one of his colleagues, Durand started keeping notes and collecting company documents, while his lawyer attempted to get the federal government involved.

In February 1996, Durand received a $35,000 bonus from TAP and then quit the company. Three months later, he and Ainslie filed suits against TAP. For the next five years, Durand and Ainslie built their case against TAP. At one point, Durand even obtained some of his former coworkers’ home phone numbers and called them while the FBI listened in. During one call to a former TAP colleague, Durand lied, saying that he had been subpoenaed, all in an attempt to get his former colleague to incriminate himself. All in all, over 500 boxes of documents were collected containing evidence against TAP. Although TAP fought the lawsuit, it finally settled in April, 2001. Durand’s take was a cool $126 million. On the day that TAP settled, prosecutors filed criminal fraud charges against the company. One of those prosecutors, Michael Sullivan, said that the charges were filed to send “a very strong signal to the pharmaceutical industry.” However, as the trial progressed, holes in Durand’s story began to appear. The kickbacks that Durand claimed were paid by TAP to doctors never occurred, the company didn’t overcharge Medicare, and a conference that Durand believed TAP used to bribe doctors into using their drugs was actually paid for by the doctors themselves. Finally, in July 2002, a federal jury in Boston cleared TAP of the charges, but not before TAP had incurred over $1 billion in legal fees. Durand is now retired and lives with his wife and daughter in Florida. Supporters of whistle-blowing, such as Senator Charles Grassley (R-Iowa), say that having informants report on company wrongdoings is the best way to prevent illegal activity. “There can never be enough bureaucrats to discourage fraudulent use of taxpayers’ money, but knowing colleagues

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might squeal can be a deterrent,” he states. However, others disagree. According to David Stetler, defense attorney for TAP, “It’s absolutely a form of extortion.” Whatever position one takes, it seems clear that whistle-blowing is a strong means to deter corporate wrong-doing. However, when this right is abused, whistle-blowers can become as unethical as the companies that they are blowing the whistle on. Questions 1. Do you believe that whistle-blowing is good for organizations and its members, or is it, as David Stetler believes, often a means to extort large financial gains from companies? 2. How might the self-fulfilling prophecy affect a whistle-blower’s search for incriminating evidence against a company?

3. When frivolous lawsuits occur, how might these cases affect future whistle-blowers who have a valid legal claim against their company? Would they be more or less likely to come forward? How might their claims be evaluated? What should companies and the government do to prevent frivolous lawsuits? 4. Do you believe that employees of a company have an ethical obligation to first attempt to report wrongdoing to members of the company itself, or should they go straight to the authorities when they suspect illegal activity? What are some advantages and disadvantages of both actions?

Source: Based on N. Weinberg, “The Dark Side of Whistle-blowing,” Forbes, March 14, 2005, pp. 90–95.

Endnotes 1. Based on C. Murphy, “Muslim U.S. Workers Hope to Break Image: Start of Ramadan Offers Chance to Reach Out in Faith,” Washington Post, November 6, 2002, p. B3; J. Curiel, “Muslims Find Bay Area Leans Toward Tolerance: But Even Here, Many Experience 9/11 Backlash,” San Francisco Chronicle, May 22, 2004, p. A-1; Muslim Woman Sues Goodwill for Alleged Workplace Discrimination,” The NewStandard, November 24, 2004, http://newstandardnews.net/content/ ?action=show_item&itemid=1255; T. Chris, “Muslim Woman Sues Disney For Discrimination,” September 10, 2004, http://talkleft.com/new_archives/006595. 2. H. H. Kelley, “Attribution in Social Interaction,” in E. Jones et al. (eds.), Attribution: Perceiving the Causes of Behavior (Morristown, NJ: General Learning Press, 1972). 3. See L. Ross, “The Intuitive Psychologist and His Shortcomings,” in L. Berkowitz (ed.), Advances in Experimental Social Psychology, vol. 10 (Orlando, FL: Academic Press, 1977), pp. 174–220; and A. G. Miller and T. Lawson, “The Effect of an Informational Option on the Fundamental Attribution Error,” Personality and Social Psychology Bulletin, June 1989, pp. 194–204. 4. See, for instance, G. Johns, “A Multi-Level Theory of SelfServing Behavior in and by Organizations,” in R. I. Sutton and B. M. Staw (eds.), Research in Organizational Behavior, vol. 21 (Stamford, CT: JAI Press, 1999), pp. 1–38; N. Epley and D. Dunning, “Feeling ‘Holier Than Thou’: Are Self-Serving Assessments Produced by Errors in Self- or Social Prediction?” Journal of Personality and Social Psychology, December 2000, pp. 861–75; and M. Goerke, J. Moller, S. Schulz-Hardt, U. Napiersky, and D. Frey, “ ‘It’s Not My Fault—But Only I Can Change It’: Counterfactual and Prefactual Thoughts of Managers,” Journal of Applied Psychology, April 2004, pp. 279–92. 5. See, for instance, G. R. Semin, “A Gloss on Attribution Theory,” British Journal of Social and Clinical Psychology, November 1980, pp. 291–30; M. W. Morris and K. Peng, “Culture and Cause:

American and Chinese Attributions for Social and Physical Events,” Journal of Personality and Social Psychology, December 1994, pp. 949–71; and D. S. Krull, M. H-M. Loy, J. Lin, C-F. Wang, S. Chen, and X. Zhao, “The Fundamental Attribution Error: Correspondence Bias in Individualistic and Collectivist Cultures,” Personality & Social Psychology Bulletin, October 1999, pp. 1208–19. 6. S. Nam, “Cultural and Managerial Attributions for Group Performance,” unpublished doctoral dissertation; University of Oregon. Cited in R. M. Steers, S. J. Bischoff, and L. H. Higgins, “Cross-Cultural Management Research,” Journal of Management Inquiry, December 1992, pp. 325–26. 7. D. C. Dearborn and H. A. Simon, “Selective Perception: A Note on the Departmental Identification of Executives,” Sociometry, June 1958, pp. 140–44. Some of the conclusions in this classic study have recently been challenged in J. Walsh, “Selectivity and Selective Perception: An Investigation of Managers’ Belief Structures and Information Processing,” Academy of Management Journal, December 1988, pp. 873–96; M. J. Waller, G. Huber, and W. H. Glick, “Functional Background as a Determinant of Executives’ Selective Perception,” Academy of Management Journal, August 1995, pp. 943–74; and J. M. Beyer, P. Chattopadhyay, E. George, W. H. Glick, D. T. Ogilvie, and D. Pugliese, “The Selective Perception of Managers Revisited,” Academy of Management Journal, June 1997, pp. 716–37. 8. See K. R. Murphy and R. L. Anhalt, “Is Halo a Property of the Rater, the Ratees, or the Specific Behaviors Observed?” Journal of Applied Psychology, June 1992, pp. 494–500; K. R. Murphy, R. A. Jako, and R. L. Anhalt, “Nature and Consequences of Halo Error: A Critical Analysis,” Journal of Applied Psychology, April 1993, pp. 218–25; A. L. Solomonson and C. E. Lance, “Examination of the Relationship Between True Halo and Halo Error in

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19. See, for example, J. Wilgoren, “Struggling to be Both Arab and American,” New York Times, November 4, 2001, p. B1; J. Q. Wilson and H. R. Higgins, “Profiles in Courage,” Wall Street Journal, January 10, 2002, p. A12; and P. R. Sullivan, “Profiling,” America, March 18, 2002, pp. 12–14. 20. See http://search.localcolorart.com/search/encyclopedia/ List_of_terrorist_incidents/. 21. See, for example, R. D. Bretz, Jr., G. T. Milkovich, and W. Read, “The Current State of Performance Appraisal Research and Practice: Concerns, Directions, and Implications,” Journal of Management, June 1992, pp. 323–24; and S. E. DeVoe and S. S. Iyengar, “Managers’ Theories of Subordinates: A Cross-Cultural Examination of Manager Perceptions of Motivation and Appraisal of Performance,” Organizational Behavior and Human Decision Processes, January 2004, pp. 47–61. 22. R. Sanders, The Executive Decisionmaking Process: Identifying Problems and Assessing Outcomes (Westport, CT: Quorum, 1999). 23. See H. A. Simon, “Rationality in Psychology and Economics,” Journal of Business, October 1986, pp. 209–24; and E. Shafir and R. A. LeBoeuf, “Rationality,” in S. T. Fiske, D. L. Schacter, and C. Zahn-Waxler, eds., Annual Review of Psychology, vol. 53 (Palo Alto, CA: Annual Reviews, 2002), pp. 491–517. 24. For a review of the rational model, see E. F. Harrison, The Managerial Decision-Making Process, 5th ed. (Boston: Houghton Mifflin, 1999), pp. 75–102. 25. W. Pounds, “The Process of Problem Finding,” Industrial Management Review, Fall 1969, pp. 1–19. 26. J. G. March, A Primer on Decision Making (New York: Free Press, 1994), pp. 2–7; and D. Hardman and C. Harries, “How Rational Are We?” Psychologist, February 2002, pp. 76–79. 27. T. M. Amabile, “A Model of Creativity and Innovation in Organizations,” in B. M. Staw and L. L. Cummings (eds.), Research in Organizational Behavior, vol. 10 (Greenwich, CT: JAI Press, 1988), p. 126; and T. M. Amabile, “Motivating Creativity in Organizations,” California Management Review, Fall 1997, p. 40; and J. E. Perry-Smith and C. E. Shalley, “The Social Side of Creativity: A Static and Dynamic Social Network Perspective” Academy of Management Review, January 2003, pp. 89–106. 28. Predicting creativity from early to late adulthood: Intellect, potential, and personality. Feist, Gregory J.; Barron, Frank X.; Journal of Research in Personality, Vol 37(2), April 2003. pp. 62–88. 29. R. W. Woodman, J. E. Sawyer, and R. W. Griffin, “Toward a Theory of Organizational Creativity,” Academy of Management Review, April 1993, p. 298; and J. M. George and J. Zhou, “When Openness to Experience and Conscientioussness are Related to Creative Behavior: An Interactional Approach,” Journal of Applied Psychology, June 2001, pp. 513–24. 30. Cited in C. G. Morris, Psychology: An Introduction, 9th ed. (Upper Saddle River, NJ: Prentice Hall, 1996), p. 344. 31. This section is based on T. M. Amabile, “Motivating Creativity in Organizations,” pp. 42–52. 32. A. M. Isen, “Positive Affect,” in Handbook of Cognition and Emotion, Tim Dalgleish,and Mick J. Power (eds.)(New York: John Wiley & Sons Ltd., 1999), pp. 521–39. 33. J. Zhou, “When the Presence of Creative Coworkers Is Related to Creativity: Role of Supervisor Close Monitoring, Developmental Feedback, and Creative Personality,” Journal of Applied Psychology 88, no. 3 (June 2003), pp. 413–22.

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